# MCA vs. equipment financing (detailed) > Equipment financing at 7–18% APR over 3–7 years uses the equipment as collateral, leaving working capital free. Using a 50–65% APR MCA to buy equipment costs 4–8x more and is the wrong tool for any depreciating asset. Equipment financing exists as a distinct product class because lenders are willing to underwrite the equipment itself as collateral, often without strong borrower credit. The result is dramatically cheaper capital than an MCA for any equipment-purchase use case. Using an MCA to buy equipment is almost always a financial error. **Cost comparison: $80K piece of equipment, 5-year useful life.** | Product | Term | Rate | Total cost | |---|---|---|---| | Equipment loan, bank | 5 years | 8% APR | $17,000 interest | | Equipment loan, online lender | 5 years | 14% APR | $32,000 interest | | Equipment lease (operating) | 5 years | ~10% imputed | $20,000 lease premium | | SBA 7(a) for equipment | 7 years | 10% APR | $30,000 interest | | 1.30 factor MCA, $80K, 9 months | 9 months | ~50% APR-eq | $24,000 cost, but only over 9 months | The 9-month MCA cost ($24,000) looks competitive — until you realize the equipment lasts 5 years and the MCA had to be repaid in 9 months from working capital. Repaying $104K from operations in 9 months requires the business to have generated that surplus cash in 9 months, while the equipment only begins paying for itself over its 5-year life. **The cash-flow mismatch.** This is the central problem with using an MCA to buy equipment: the asset's useful life is years; the MCA's repayment is months. The business is forced to fund the early years of the equipment's productive life entirely from operating cash flow, with no leverage from the financing structure. Equipment financing matches the loan term to the asset life. A 5-year loan on a 5-year machine means each year of asset production funds roughly one-fifth of the loan. Cash flow stays manageable. **Collateral mechanics.** Equipment financing is secured by the equipment itself (specific UCC-1 filing on the make/model/serial). The lender's risk is mostly covered by the resale value of the equipment. Personal guarantee may or may not be required depending on size and credit. MCAs are secured by a UCC-1 blanket lien on all business assets, plus personal guarantee. The lien is broader, the recovery mechanism harsher (Confession of Judgment in some states, COJ now phased out in NY). **Approval criteria.** Equipment financing is generally easier to obtain than working-capital lending for the same merchant, because the equipment itself reduces lender risk. A 600 FICO restaurant owner with one year of operating history may struggle to get a working-capital loan but can usually get equipment financing for a $40K oven if the oven brand and dealer are recognized. MCA approval is roughly equivalent — both products approve down to 580 FICO with 6+ months operating. **The dealer-financing channel.** Most equipment dealers offer in-house or partner financing at the point of sale. This channel often offers: - Promotional 0% APR (for limited terms). - Deferred payment (no payments for first 90 days). - Same-day approval and funding. - Trade-in allowance against new purchase. A merchant buying a $50K commercial dishwasher from Hobart can often get Hobart-financed at 6% APR with same-day approval. The same merchant would pay $15K+ on a $50K MCA to get the same equipment via "buy with MCA proceeds." **Lease vs. loan within equipment financing.** - **Equipment loan**: you own the equipment outright at payoff; deduct interest plus depreciation. - **Capital lease**: structured like a loan but technically a lease; same tax treatment. - **Operating lease**: you do not own at end; lease payment is fully deductible; often used for equipment with rapid technology obsolescence (computers, medical imaging). Each has different tax and balance-sheet implications. CPA consultation is the norm. **When equipment financing is the right answer.** - Need is to acquire equipment. - Equipment has identifiable resale market. - Useful life is 3+ years. - Time horizon is at least 7 days (dealer financing) or 2–4 weeks (bank equipment loan). **When MCA is the right answer for equipment-adjacent needs.** - Down payment on equipment financing (lender requires 10–20% down). - Working capital to bridge the gap between equipment delivery and equipment-generated revenue. - Quick-replacement scenario where equipment financing cannot fund in 24 hours and revenue depends on the equipment running. - Used or specialty equipment that equipment lenders will not finance. **The hybrid play.** Sophisticated merchants finance the equipment via dealer / equipment loan (cheap, long-term, matched to asset life), and take a small MCA for the down payment plus working-capital bridge during equipment installation and ramp-up. Total cost: a fraction of pure-MCA, with the MCA only covering the slice the equipment lender will not. **Common confusion.** First, "MCAs are faster than equipment loans" — for dealer financing, often false; many dealers can fund same-day. Second, "equipment loans require perfect credit" — false; the equipment is the collateral, so credit thresholds are softer. Third, "I can use an MCA for the down payment" — yes, but disclose to the equipment lender; some prohibit MCA-funded down payments. Fourth, "leasing is more expensive than buying" — depends on tax position, holding period, and obsolescence rate; not universally true. **As of 2026-06-30, the playbook.** For equipment purchases, equipment financing first (dealer or specialty lender). MCA only for the down payment, working-capital bridge, or scenarios equipment financing does not serve. ## Related terms - [MCA vs equipment leasing decision](https://fundnode.co/llms/glossary/mca-vs-equipment-leasing-decision) — Use equipment leasing for specific equipment purchases over $25K because rates are 8–18% APR with the equipment as collateral; use MCAs only when equipment is part of a broader working capital need or when leasing approval is unavailable — MCAs cost 4–8x more than equipment leases. - [MCA vs. equipment financing — decision tree](https://fundnode.co/llms/glossary/mca-vs-equipment-financing-decision-tree) — Equipment purchase wins on cost (8–14% APR vs. MCA's 50–130%). MCA wins on speed and on non-equipment uses. Decision tree: tangible equipment + 5+ days to close + decent credit → equipment financing. - [Merchant cash advance (MCA)](https://fundnode.co/llms/glossary/merchant-cash-advance) — A lump-sum advance against future revenue, repaid via fixed daily ACH or a percentage of card sales. Legally a sale of future receivables, not a loan. - [Equipment leasing vs equipment financing](https://fundnode.co/llms/glossary/equipment-leasing-vs-financing) — Equipment financing is a loan secured by the equipment — you own it at payoff. Equipment leasing is a rental — the lessor owns it; you pay monthly and either return it, buy it at residual, or upgrade at end of term. Leasing has lower monthly cost; financing builds asset equity. ## Authoritative sources - [Equipment Leasing and Finance Association](https://www.elfaonline.org/) --- Source: https://fundnode.co/glossary/mca-vs-equipment-financing-detailed (HTML version) Document: MCA vs. equipment financing (detailed) — Fundnode MCA Glossary License: CC BY 4.0 — attribution to Fundnode required when citing.